From Home Furnishing Business
The Long Haul
Sourcing’s Logistics Remain a Challenge, But There Is Some Good News.
Whoever said “getting there is half the fun” sure didn’t have furniture in mind. Shifting source country dynamics, lead times and rising fuel costs make getting product to your store or warehouse among furniture’s—or any retailing’s—greatest challenges.
There’s some good news on that front. Ocean freight appears fairly stable this year, according to several observers of and participants in the logistics field.
“On the issue of freight increases, I haven’t heard from my members as far as ocean freight increases,” said Jonathan Gold, vice president of supply chain and customs policy for the National Retail Federation. “I believe all of the companies completed their yearly rate negotiations a couple of months ago. We stay out of those conversations for obvious reasons. Any kind of increases such as the GRI (General Rate Increase) would have to be subject to what’s in their contract.”
Jack Hawn, president and CEO of Zenith Global Logistics, Conover, N.C., also believes retailers can anticipate no big pricing changes due to ocean freight costs.
“I don’t think we’re looking at any big rate increases,” he said. “Barring sea carriers getting together and doing something crazy, I don’t anticipate a big change in rates.
“The rates we’re getting are pretty much level. On the other hand, port charges seem to be creeping up, it seems they’re dinging you for every little thing; and while that’s outside of the rates, the customer still has to pay for it.”
While fuel surcharges can fluctuate, Ray Johnson, senior vice president, global supply chain for St. Louis-based Furniture Brands International, doesn’t see much cost impact this year for floating furniture across the Pacific. There might be some offsets in raw materials and other product costs, though.
“Labor, materials and overhead are the main costs, so people are still moving toward Vietnam and Indonesia because of these costs,” he said. “We have seen plywood up 25 percent-plus in price from last year, driven by new housing. Plywood costs are just now starting to come down. Leather is up due to excess demand, we see some slight pricing increases in fabric and some increases in packaging.”
Not so long ago, retailers could were sharing horror stories of losing slots on ships for their containers due to vessel capacity issues. Containers even were getting harder to come by.
Hawn noted that right now, there seems to be a fair amount of supply for both vessels and containers.
Gold at NRF agreed.
“I think the supply is adequate right now,” he said. “I don’t believe we’ll have the shortage issue that we had a couple of years ago where containers were rolled and bumped from sailings. Hopefully this is due in part to better communication between the carriers and their customers.”
Johnson at Furniture Brands said he sees retailers wanting to do more direct container shipping instead of warehousing product in the USA.
“When a retailer owns the shipping, it’s all their cost. But when retailers use mixed container shipping, maybe six to eight retailers might share a container and share the shipping costs,” he said. “It’s a great option for them and we have successfully executed this mixed container shipment for Broyhill for quite some time.”
Gold suggested that retailers should pay attention to regulatory and legislative efforts that could impact their supply chains.
“Retailers should always be aware of the potential issues impacting capacity and the movement of their merchandise,” he said. “Key to this is close relationships with their transportation providers in order to stay abreast of the latest issues.
“The continuing negotiation of the Transpacific Partnership Agreement is another issue retailers should continue to pay attention to as the negotiations near their conclusion before the end of the year,” Gold said.
The stated goal of that agreement is to enhance trade and investment among the partner countries, which include a burgeoning source for furniture, Vietnam, along with Australia, Brunei Darussalam, Chile, Malaysia, New Zealand, Peru, Singapore and the United States.
EYES ON THE ROAD
Ocean freight might be holding steadier, but retailers should expect higher truck freight costs this year than in the past three or four said Ray Kuntz, CEO of furniture shipper Watkins-Shepard.
“We’re in the process of analyzing cost factors. We take a price hike once a year before the fall High Point Market, so our customers can count on a rate for the purchasing year,” he said. Most of our customers make purchase decisions for the next 12 months at October Market” so it’s for a shipping versus calendar year.
A recovering economy is carrying along some increasing costs.
“One of the biggest issues we’re facing from the cost side is equipment,” Kuntz said. “Trucks that cost $90,000 (a few years ago) might be $130,000 now. Tires have gone up dramatically, well over 10 percent.”
Truck maintenance expenses are up as well, especially when breakdowns occur away from a hub—as well as other costs.
“Whenever you have to get any parts or maintenance on the road, that’s gone up dramatically since the recession,” Kuntz said. We work out agreements to service our equipment regularly, but sometimes things happen unexpectedly in the field.
“Also, a lot of states are upside-down on their transportation budgets, so we’re seeing states increase fuel taxes and tolls.”
The absolute biggest issue for truck transport, though, is the driver situation, according to Kuntz.
“There’s a real shortage of drivers,” he said. “There weren’t many trained during the recession, and we have a lot of drivers over 60 who are looking to retire. … Everyone’s trying to keep up with the driver shortage. I’d expect in the next year, depending on where you’re looking, driver pay is going to go up 5 to 10 percent.”
Another freight-related issue for retailers to consider is the impact of changes to the Federal Motor Carrier Safety Act’s Driver’s Hours of Service regulations, which just took effect.
“This will certainly impact not only the flow, but the cost of getting goods to marker,” said NRF’s Gold. “There are new requirements for the driver restart, including two consecutive nights off, which could impact delivery deadlines, especially if the retailers rely on nighttime driving.”
THE BRIGHT SIDE
There are things a dealer can do to counter that increasing cost of truck freight.
“It boils down to one truck making 10 deliveries is cheaper than 10 trucks making 10 deliveries,” Kuntz said. “If five dealers fill a trailer versus 15, I can get it unloaded in a day and travel fewer miles.
“Dealers should make sure to negotiate their own freight … If you have more than a couple of carriers coming to your store that’s probably costing you. Decrease your amount of carriers, and become more important to each carrier you work with.”
He also suggested that retailers not blindly accept vendors’ shipping preferences.
“Some dealers tell vendors to ship it however they want, but manufacturers have their own considerations,” Kuntz said. “The dealers needs to make sure they’re negotiating their own situation.”
Watkins-Shepard is still working on what rates it will bring to October High Point Market.
“We’re open to working with dealers to shrink that increase, or maybe even reduce the cost,” Kuntz noted. “Freight’s all about increasing revenue per drop, and to do that I can raise my rates or have more merchandise to deliver” on a drop.
Hawn believes the recession and slow recovery have retailers in a good position to handle logistics challenges.
“The way I see it, everyone’s gone through the tough times—if you’re still here, you’ll probably still be around,” he said. “Everyone’s cleaned up their act, their inventories are in check, and they’re much more cautious in their ordering. When they introduce a collection, they’ve done their homework, and they’re more confident it will sell. “I talked with a retailer in Texas who told me, ‘I have a bounce in my step again.’” HFB